Len’s borrowing

Four years ago, the Auckland Council had $3,081 million of debt (June 2011). At June 2015 it had $6,328 billion of debt. That is an increase of 105%.

An an annual basis it means Auckland Council have been borrowing $812 million a year.

That’s $68 million a month.

Or $16 million a week.

On a daily basis that is $2.22 million every day for the last four years.

Now this isn’t central Government where your tax take is uncertain, and you have cycles of surpluses and deficits. Local Government is your rates income is a fixed amount and known and should match your spending (basically). Yet Len has chalked up $3.3 billion of borrowing in four years, which is partly why rates had to go up 10%.

Kimble

Ross Miller

Surely you’re not saying that the ‘left’ controlled ACC is incompetent and/or reckless in racking up debt … or perhaps you are. Unless there’s a pathway forward to a balanced budget (and there’s not) then ‘their’ legacy’ will, at some point in the future. come back to bite with a vengeance … but I guess it won’t be ‘their’ problem … sigh.

If that isn’t outright fraudulance it’s profligate spending. His deputy should call a vote of no confidence and his voting rights suspended pending an investigation. His deputy has admitted he’s not a team player and and that sounds like he has unprecedented say in the financial affairs of Auckland City Council. This all warrants an investigation by Central Government.

Fentex

Consideration of spending ought include an evaluation of what is paid for. Now I imagine there’s a lot of things councils pay for that many people would rather they wouldn’t.

But does that include the expensive transport infrastructure I see constructed in Auckland when I visit that I imagine is quite a significant part of their councils budgeting?

And was Auckland taking enough income to meet it’s residents demands before hand? I don’t know but my sister, who lives there, tells me it was so – that Auckland had put off rate increases and infrastructure for a long time and has no one else to blame for a short sharp shock of rate increases as deferred expenses and spending have come to a head.

I can’t assert that’s true, but it’s of a context that must be investigated to have an informed opinion.

billmurray

The bastard should be thrown in jail. There are now over 3000 people who are getting paid over $100,000 per year working for the Auckland City Council. The council is out of control. The government and the ratepayers association should bring in the serious fraud office.

No one, no one at all is going to be able to run Auckland without spending at a rate well above inflation for several reasons. One is that the roading and services infrastructures are built for the 1950s and have never been upgraded. Another is that the city is expanding at a huge rate so the infrastructures are not only going to have to be brought up to date and I shudder to think what the cost that is going to be, but vastly expanded to take account of the rising population. As DPF points out, Auckland is on a fixed income. The only way you are going to be able to pay for the necessary works is to either increase the rates by an amount which makes the the current rate rises small change. If you don’t make the necessary upgrades now they will cost more in the future, as inflation and other effects cause massive cost increases. Personally, I wouldn’t want to be Auckland mayor for any money.

So, you need money now, or the city will grind to a halt (and often does so already). You only have the rates to finance the needs. How are you going to raise the necessary funds? PPPs won’t do it as the returns for the Private sector will not entice the Private sector to partner. And at the end of the day, the costs will still devolve on the Auckland residents one way or another.

Brown was silly to promise rate cuts. I don’t believe that Goff has promised anything yet. It will be interesting to see what he does promise. I’d promise huge rates risen (maybe more than 100%) and disruption and inconvenience for years. That’s more realistic.

Alan Wilkinson

wreck1080

Just to add, a few quick calcs…..518k ratepayers in auckland, 6 billion debt.

That is $11,500 debt per ratepayer.

It is the trend that is worrying – trends can change for better or worse — i don’t know if the current absolute debt level is high or not….what is the average debt per ratepayer around different councils?

eg, the debt per ratepayer in Tauranga is $8800, a bit less than Aucklands.

And, what hidden debt is lurking? Tauranga for example used some financial manipulators to disguise some debt via complex financial instruments.

marquess

This is to be expected when the National party refuse to pay for Auckland’s infrastructure growth needs, while reaping the tax that those residents pay. Pipes, tunnels and roads don’t pay for themselves

Of course once you bring rates into the conversation, cue Kiwibloggers loudly thinking that somehow rentals are exempt from rates.

Adolf Fiinkensein

Fentex

“But does that include the expensive transport infrastructure I see constructed in Auckland when I visit that I imagine is quite a significant part of their councils budgeting?”

Much of what you see is funded by central gummint. The council has failed dismally to provide the underground services necessary to allow for sufficient new homes to be built. Storm water, sewerage etc.

God knows what they’ve spent the money on but I would think an Auditor General’s inquiry would be interesting.

billmurray

Brigitte

It seems to me that one problem is not adequately valuing/depreciating the infrastructure. This might be just due to the accounting system. If we do not pay the on-going maintenance cost to keep the infrastructure up to standard then we should put a deferred expense into the accounts to cover the future additional costs. Failure to do that means that councils have an incentive to defer (even essential) maintenance to make their running costs look better than they are. This allows them to spend up large on their pet legacy projects. However, payback is not fun (as we are now finding out the hard way).

hmmokrightitis

Whilst Im no Brown fan (ick), Id be interested to know how much debt Auckland inherited from the other councils it took over from. Remove that from the equation and youd have a more representative figure.

Bingo99

The Auckland Council budget situation is a disgrace. There are huge savings to be made but it I think it requires the heavy hand of central government restricting Councils to core activities. I had a brief experience with the Council bureaucracy and it turns out there were 6 – SIX! – FTEs working on “international relations”. FFS!

In saying that, Auckland has suffered from underinvestment for decades from Wellington. So if this debt is being used to invest in productive assets (infrastructure) then that’s a little different. I’m not sure though – what is it being used for? Of course, borrowing at a time of low interest rates is the best time, though they appear to have splurged assuming long-term low interest rates.

And yes does this account for all 7 council debts from prior to amalgamation?

notrotsky

holysheet

If all ratepayers in auckland did what penny does and refuse to pay anymore rates until the auditor general steps in to investigate. Then you may get an answer.
Brown is only one voice and one vote. What about the rest of the council. They must all be as bad as Brown.

Simon

The money has gone on gold plated toilet blocks. Seriously contractors to Auckland shitty are making vast fortunes.

$40 billion in assets. What a clown. An asset in the real world is something that produces a net income. If Auckland shitty had $40 billion in income producing assets then rates would be falling. All very well saying the gold plated toilet blocks in Point England are social assets but that dont pay the loan.

Simon

Dont forget those National party mongs who helped finance Auckland Shitty by allowing Central government to back Shitty’s loans so the interest rates were at rock bottom. See Local Government Borrowing Act 2011.

hmmokrightitis

WineOh

The extra $3,300,000,000 divided between 480,000 households in the Auckland region is about $7K per household. Thats not as much as I thought but it still means that for every dollar in rates over 3 years they’ve borrowed an extra dollar to go with it. Spending more than you earn is never sustainable in the long term.

MH

The Bangles

I do not agree with Enkidu at 2.28 pm, for a number of reasons. Yes, true their are more people in Auckland, which will raise the costs nontheless, but wait a minute, the more people their are the more ratepayers their are. Suppose for instance you own a three bedroom house, you ask the council if you can create another room attached to the three rooms. By being required to ask the Council’s permission, they then can declare the value of your property raised, and therefore your rates go up. More people, means more costs but also more revenue.

The only real variable here is capital spending. If they want to buy $10 billion worth of new roading, and this roading will last for 20 years, that equates to $0.5 billion per year. Other than this one factor, rates should not have to be more than inflation, it should be enough, if the money is spent wisely. If in every year, their revenue is greater than their expenses, and they pay down that debt, when they need to fund new projects, they can borrow the money, and then once its all funded, and Auckland’s infrastructure is bigger and their’s more people, than the extra revenue can pay for those projects with the interest.

But then wait a minute they’re not spending the money wisely, and why spend it wisely if you can just keep the rates going up all the time? That’s what the real problem is.

meanybeany

The user pays principal is a right wing idea. The “users” of our infrastructure will be the future generation of ratepayers. The best way to apply the users pays principal to long term infrastructure spending is debt financing. David – this post is just a beat-up on Len.

Paulus Gnome

The Bangles

Don the Kiwi, in regards to Len being a socialist, one of the ways I can see that, is that everybody in Auckland gets about the same level of services. Maybe not when you count the amount of pools, but overall when you look at things like bus services. Yet Manukau pays much lower rates than the North Shore. When their was a North Shore City Council, Waitakere City Council, Auckland City Council, Manukau City Council etc, each of these councils was responsible for itself.

Expenses had to be within revenue, if Manukau was poor, their services would be small. What Len has done is dropped the rates for the poor parts and raised it for the richer parts. But that’s only temporary, with the rates rises we’ve been having Manukau is no better off than when Len was first in power.

Komata

Ummm: has anyone thought to contact Penny B about this? After all as a non-rate payer (and therefore contributor to the debt ‘difficulty’) and Mayoral Candidate for 2016 she would seem to have a certain vested interest on both sides of this ‘expense’, especially as she is a (self -appointed) ‘Public Watchdog’ and all for ‘transparency’ (unless it suits her not to be, which is seemingly all the time – and / or it involves John Key).

The Bangles

So gump, what I think you’re saying, is that if they say rates will go up by 2.5% per year, this means that altogether when all the ratepayers are added, the rates will go up by 2.5% per year. And if the value of your rates goes up, and you have to pay an extra $200, than this means everybody else will pay slightly less by a fraction of a cent.

But gump, I’m saying if their is an extra human being in Auckland, that they need to build an extra room for, surely they can raise rates by that person. I’m not talking about the value rising inflation wise. Inflation makes everything go up in price, including homes, I’m talking about an actual increase in what exists, like an extra room built. Surely they can charge extra per person who comes into Auckland.

If this isn’t the case, please send me a link, as this is just too hard for me to believe. If they can’t charge rates per person in Auckland, multiplied by the area they live, than it makes no sense to have more people in Auckland.

@The Bangles. No, the increased population does not equate to proportional rates rises. Most new development is in areas where the house values and therefore rates are low. But the necessary infrastructure IS proportional to the population. Add to that the fact that the infrastructure (sewers, roads and so on) dates from the ’50s or earlier and because of the density of population will be expensive to upgrade. How much did a small tunnel cost? Plus a second Harbour crossing is needed. Will it be a multi-billion dollar tunnel or a multi-billion dollar bridge? One power cable issue took out the CBD for how long? Every new road means traffic problems. Every new road means the council has to buy up dozens of houses.

The Bangles

So gump, what this means is that they take the value of all the houses, and you pay in proportion to your value of the house. Suppose yours is worth $500,000, and altogether the combination of all the houses is worth $30 billion, this means because yours is worth $500,000/$1 billion = 1/1 billion you basically pay 5/10,000 of the total rates bill.

And those renting have the rates passed on to them. If you have to pay say $10 a week in rates, your going to pass on at least some of that to your tenants. So then in that case if the house owners pay the whole lot, then the rates will have to increase to accomodate the extra services from the extra people living in Auckland.

If this is true, than I can see your point. I will be writing to my Councillor Cameron Brewer to see what he thinks, but thanks for letting me know.

Think we have been here elsewhere.
Just remind me what this National Govt. has done with their borrowing in the last 9 years.
Beating up Len (and I’m not a Len sympathizer), for doing exactly the same as the National Govt. has done is leaving me wondering if DPF still runs this thread.
Lots of funny stuff coming through in the content lately. Left wondering if by some quirk of fate I’d actually been duped by the site and finished up at the standard.
Because the quality of posts and debate here is certainly way lower than it used to be.

Len proposed an alternative to debt to pay for capital works such as roading and that was a user pays system such as a fuel tax and also congestion charges. There was a certain government that opposed this outright that normally favours user pays charges…..I’m just struggling to think who that government was.

I’m not quite sure about exact details, but a couple of years ago the council books weren’t in good shape, then they were given Eden Park by the Government and so added that “Asset” to their books – that made the books balance. Therefore so called assets aren’t funds, but they give you the ability to borrow more money. I read recently from Ratepayers Alliance that the actual debt per ratepayer householder is $22,000.00. Their spending has always been like lotto winners’ easy come easy go, I wish we could sue them for misappropriation of funds.

Enkidu, I think the way to go to go is to spread the city outward (greenfields I think it’s called) whereby you have new infrastructure that will (hopefully) last for another 100 years. I have a 100 year old home where the water and sewage pipes are finally all starting to collapse and we have had to replace them. The whole inner city has all the original water/sewage pipes which will all start collapsing at the same time made worse by all the infill housing housing which is being done right now. It is going to be a disaster. The ratepayers are going to have to pay for that too.

Steve (North Shore)

I read recently from Ratepayers Alliance that the actual debt per ratepayer householder is $22,000.00.

Guaranteed by about 400,000 people – it’s a ponzi scheme extraordinaire.

The debt per ratepayer was pretty bad prior to amalgamation. Waitakere CC was the worst at about $13,500 per ratepayer (from memory). Yes this is a large increase, but to be fair a lot of stuff needed doing. It’s either funded by debt or equity via the ratepayers (user pays) and there’s no appetite for that, and strangely enough no appetite for debt either.

Gabby

Don the Kiwi

Paulus Gnome (535 comments) says:
November 11th, 2015 at 4:02 pm
Thanks for the support Don; this shit storm will come to a council like yours sooner or later.

Don’t think my council here in Tauranga is any diffrent Paulus, it already has.
We had Townes as our CEO for a number of years along with socialist mayors etc. Here we have one of the most indebted councils in the country relatively speaking, and our rates have doubled in the past seven years.

V

The Bangles

Oh V, how right you are, just thinking about it gives me chills. The Auckland City Council owes money, according to the ratepayer’s alliance it is at $22,000 per Aucklander. If the interest on Council debt is say 3% per annum, this means the interest is 3% x $22,000 = $660 per year. Now, if all of a sudden asset values go down, our creditors will get a bit nervous, and then slap a higher rate of interest on us. Suppose it goes to 5%, 5% x $22,000 = $1,100 per year just in interest.

So yes, one shock is all it takes, we haven’t seen nothing yet, that is if things are going to go wrong. Oh and Wellington has refused to lend Len more money. For anybody skeptical about the 3%. Look at this link